Kiichi Miyazawa, the finance minister, who has so far been sceptical about the need for increased government spending, said the jobs situation was so grave he had changed his mind. "I will spare no expense for what is necessary," he said.
The unemployment rate, traditionally low in the land of lifetime employment, hit an unprecedented 4.8 per cent in March.
Taichi Sakaiya, head of the Economic Planning Agency, said the amount of extra spending would depend on the jobs measures implemented. "We are not going to follow the traditional way of setting the amount of an economic stimulus package first and then deciding what steps to put into it," he said.
The woes of the Japanese economy will, alongside Russia, figure prominently at next month's G7 summit in Koln. The "sherpas", senior officials from member countries, met in Bonn yesterday to draw up the agenda.
News that there would be a further budget package came in the wake of a new report from the Bank of Japan saying there are no clear signs of recovery. Asked whether the situation had improved since last month, the most optimistic thing Masaru Hayami, the Bank's Governor, could say was: "The halt in the downturn has become clearer with the passing of time."
Separately, the government attempted to head off a rumoured speculative attack on the yen. Both Mr Miyazawa and Eisuke Sakakibara, known as "Mr Yen" for his past ability to shift the currency market, emphasised the need for a stable currency. While the weak yen is essential to boost exports if the economy is to recover, the Japanese authorities dislike volatility on the foreign exchanges. The comments were clearly intended to plant the fear of Bank of Japan intervention in the minds of speculators.
The yen strengthened yesterday after the comments. But analysts said hedge funds had increased their volume of yen "carry trades", a means of borrowing cheap and lending dear that depends on the assumption the yen will fall.
The half-yearly economic forecasts from the Organisation for Economic Co-operation and Development earlier this week echoed the general lack of optimism about Japan. The report described the outlook as "bleak", and said there was little conventional macroeconomic policies could do to pep up the economy. Like other commentators, the OECD emphasised the need for structural reforms. But the immediate impact of these is to accelerate the pace of lay-offs as companies struggle to improve profitability.
In a sign of the distance still to be travelled in clearing up the overhang of bad loans from the late Eighties, leading Japanese banks yesterday revealed steep losses for last year.
These included Bank of Tokyo-Mitsubishi, the biggest bank and the only one not to take up public funds under a 7.5 trillion yen government bail- out of the banking system last year. It reported charges of 1.13 trillion yen ($9.1bn) against bad loans in 1998/99, lower than the previous year's 1.43 trillion yen. This took overall net losses to 22.3bn yen, down from 917.52bn yen.
Seven other big banks, including Sumitomo, Dai-Ichi Kangyo, Tokai and Fuji, also announced big losses and write-offs. The banking system's total charges against loans are expected to reach 10 trillion yen, with problem loans estimated to stand at around 20 trillion yen.Reuse content